Friends who have been watching the Japanese Yen recently should have felt it—this currency is really in a tough spot. The USD/JPY is still fluctuating between 152 and 160, and the effective exchange rate has hit a 53-year low, truly a relentless depreciation.

To explain why the Yen is so weak, there are actually just a few reasons. First, the interest rate differential between the US and Japan has been widening. Although the Bank of Japan is raising interest rates, the pace is much slower than the US, leading many to borrow Yen to invest in dollar assets, putting downward pressure on the Yen. Plus, Japan’s new government is pursuing fiscal expansion, increasing debt issuance, which raises concerns about fiscal risks and further depresses the Yen. The US economy is relatively stable, with high inflation persistence, keeping the dollar index strong. Japan’s domestic economic fundamentals are also relatively weak, with insufficient consumer spending; even with wage growth, real purchasing power remains under pressure. The Middle East situation isn’t helping either—Japan relies heavily on Middle Eastern oil imports, and the blockade of the Hormuz Strait directly impacts energy security, widening the trade deficit.

Speaking of the Bank of Japan, they are the key. Starting in 2024, they began adjusting policies—first ending negative interest rates, then gradually raising rates. By December 2025, the policy rate reached 0.75%, hitting a 30-year high since 1995. But that’s not enough; the market is now eyeing the June meeting, expecting them to raise further to 1.0%. If they succeed in raising rates, narrowing the US-Japan interest rate gap, it would be a positive for the Yen. However, even with rate hikes, truly reversing the Yen’s long-term downtrend depends on whether Japan implements meaningful structural reforms. The economy needs to see a clear boost in growth momentum, with wages and prices establishing a healthy cycle—only then can the Yen have a solid foundation for strength.

What do institutions think? JPMorgan’s forecast is more pessimistic, predicting the Yen could fall to 164 by the end of 2026. Société Générale also expects the Yen to dip to 160 by late 2026. Their logic is that the global macro environment still favors risk sentiment, arbitrage trading will continue, and given the cautious stance of the Bank of Japan, combined with the Fed possibly being more hawkish than expected, USD/JPY will stay high.

Is it a good idea to buy Yen when it’s depreciating? That’s a common question. In the short term, the widening US-Japan interest rate gap and the slow pace of central bank policy shifts make it difficult for the Yen to strengthen. But in the long run, the Yen will eventually return to its fair value. Those needing it for travel or consumption can buy in installments to meet future needs. For investors aiming to profit from forex trading, it’s important to consider CPI, GDP, central bank statements, and international market conditions to judge the trend. Pay special attention to the statements from the Bank of Japan governor—these can be amplified in the short term and influence Yen movements. Also, the Yen has a safe-haven attribute, often appreciating during crises.

Regardless, investing in forex should consider your own financial situation and risk tolerance. It’s best to consult professionals and implement good risk management. With such market volatility, it’s wise to be cautious when you don’t have full confidence.